The Leveraging of Corporate America

Unregulated U.S. corporations dramatically increased their debt usage over the past century. Aggregate leverage – low and stable before 1945 – more than tripled between 1945 and 1970 from 11% to 35%, eventually reaching 47% by the early 1990s. The median firm in 1946 had no debt, but by 1970 had a leverage ratio of 31%. This increase occurred in all unregulated industries and affected firms of all sizes.

Not surprisingly, this change reflects government policy:

Changing firm characteristics are unable to account for this increase. Rather, changes in government borrowing, macroeconomic uncertainty, and financial sector development play a more prominent role.

Further evidence for the long-term lengthening of the economy's capital structure, not from technological improvement, but from the government's policy of always keeping interest rates below their market levels.

Follow Mises Institute

Add Comment

Search Blog

SEARCH

What is the Mises Wire?

The Mises Wire —the Mises Institute's Blog—offers short, contemporary news and opinion from our scholars and associated personnel. Check back often for the latest commentary on Austrian economics and libertarian political economy.

Martin Feldstein, Professor of Economics at Harvard, President Emeritus of the National Bureau of Economic Research, and chair of Ronald Reagan’s Council of Economic Advisers from 1982 to 1984 joins Joe Salerno and most Austrians by speaking out against the Fed’s and central...

Today would have been the 89th birthday of Murray Rothbard. In this 1988 essay, Ron Paul explores Murray Rothbard's importance in Paul's own political career and the importance of education and scholarship in changing political realities. ...